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Tips for Deducting Losses from a Disaster, Fire or Theft

If you suffer damage to your home or personal property, you may be able to deduct casualty losses on your federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses:

When to deduct casualty losses.

Generally, you must deduct a casualty loss from your income tax return in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss you should claim.

Your casualty loss is generally the lesser of:

1) Your adjusted basis in the property before the casualty – typically the amount you paid for it.

2) The decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. If the property was insured, you must have filed a timely claim for reimbursement of your loss.

Subtract $100 from every casualty loss claim.

After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

Reduce your casualty loss claim by 10% of your income.

You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Do you have questions about deducting casualty losses from your income tax return? Contact Miller Kaplan for assistance.

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